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By Brian Nelson, CFA
On July 23, Chipotle (CMG) reported disappointing second quarter results with non-GAAP earnings per share coming in line with the consensus forecast, but revenue missing what the Street was looking for. Total revenue increased 3% in the quarter thanks to new restaurant openings, but comparable restaurant sales fell 4% due to lower transactions, and its operating margin dropped to 18.2%, down from 19.7% in the prior-year period. The Street had been looking for a 2.9% decline in comp sales in the quarter. Restaurant level operating margins fell to 27.4% from 28.9% in last year’s quarter. Adjusted diluted earnings per share was $0.33 in the quarter, down 2.9% from the second quarter of last year.
Management had the following to say about the results:
We are seeing momentum build as we rolled out our summer marketing initiatives and as our comparisons ease. Our talented restaurant teams remain focused on delivering hand-crafted meals in abundance with the best ingredients, made fresh daily using classic culinary techniques at a value you cannot find anywhere else. I (CEO Scott Boatwright) am optimistic that our positive momentum will continue as we further support our world-class people with new tools to improve execution, introduce new menu innovations, amplify our rewards program, and introduce this great brand to more communities around the globe.
During the second quarter, Chipotle opened 61 company-owned restaurants with 47 locations including a Chipotlane drive thru. Chipotle is doing a good job managing inflation, with food, beverage and packaging costs falling to 28.9% of total revenue in the quarter, a decline from 29.4% in the second quarter of 2024. During the second quarter, Chipotle repurchased $435.9 million of stock and had $838.8 million remaining under its share repurchase authorization.
Looking to 2025, Chipotle now expects flat full year comparable restaurant sales (was low to mid-single digits) and plans to open 315-345 new company-owned restaurants with over 80% having a Chipotlane. We like Chipotle’s long-term restaurant growth potential and believe its negative comps registered in the second quarter are temporary. Shares remain an idea in the Best Ideas Newsletter portfolio.
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Tickerized for CMG, NDLS, SHAK, CAVA, YUM, MCD
Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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